Aug

24

October 1987 liquidity

August 24, 2020 |

Jordan Neuman writes: 

Ralph referenced the liquidity situation on 10/20/87. You can research and see that the S&P Futures settled at a 10% discount to the cash on 10/19. But it was wholly untradeable.   For one thing, you couldn't get a broker to answer your call. In a real stress situation liquidity is an illusion.  That's one thing the man from Lebanon has right.

Hernan Avella writes: 

He only things these analogues of ‘87 are predictive of, is the age cohort of the person that brings them up and his/her relative underperformance to the mkt.

Ralph Vince  writes: 

Nonsense. Try to overcome your animosities towards others and me and act like a man here. 

If you weren't around over a period of a critical couple of days in October, 1987 you don't know, firsthand, what a lack of liquidity in equities and credit instruments is like. If you think that cannot happen again, that the past is not germane to the current environment, or that you are wise enough to see it when it eventually comes, good luck — God' knows you;re going to need it.

Those of us who were around and deeply involved in it back then know full-well that it not only can happen again, but that things are far more precarious now, structurally, than then, for several reasons, each of which independently conspires to make things now far more dangerous.  

Michael Cook writes:

Notwithstanding the fisticuffs here, I wasn't around in '87 but I was in the middle of 97/98 when, for instance HKMA went openly and highly aggressively bid only into its currency and equity markets. The message telegraphed was 'we will buy every damn share you sell up to the size of the entire market'. Soros and a bunch of others were having a crack at Hong Kong after doing so well with all the other Asian/paper tigers, esp Thailand, Malaysia and Indonesia.

That was 98, way before GFC, QE and the other myriad of dysfunctional acronyms. If we do face a melt down in the US a la '87. I just dont see why the Fed wouldnt straightforward buy the equity market directly to support it.

What would be stopping the Fed, the feeling that that would be illogical, ultra vires, anti-capitalist? Look at what they have done already?! They are already buying corporate debt (bailed GM and AIG in GFC etc etc etc), it is quite a small jump now to just directly buying Apple common stock etc if needed.

I hate it, and I think it all ends in tears, but that looks the name of the game to me until the system literally breaks and we need do a new Bretton Woods / debt jubilee whatever, where the rules are all reset


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